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Jacquesfrancois Thisse - One of the best experts on this subject based on the ideXlab platform.
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Monopolistic Competition without apology
Chapters, 2018Co-Authors: Jacquesfrancois Thisse, Philip UshchevAbstract:We provide a selective survey of what has been accomplished under the heading of Monopolistic Competition in industrial organization and other economic fields. Among other things, we argue that Monopolistic Competition is a market structure in its own right, which encompasses a much broader set-up than the celebrated constant elasticity of substitution (CES) model. Although oligopolistic and Monopolistic Competition compete for adherents within the economics profession, we show that this dichotomy is, to a large extend, unwarranted.
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toward a theory of Monopolistic Competition
Social Science Research Network, 2016Co-Authors: Mathieu Parenti, Jacquesfrancois Thisse, Philip UshchevAbstract:We propose a general model of Monopolistic Competition which encompasses existing models while being flexible enough to take into account new demand and Competition features. Even though preferences need not be additive and/or homothetic, the market outcome is still driven by the sole variable elasticity of substitution. We impose elementary conditions on this function to guarantee empirically relevant properties of a free-entry equilibrium. Comparative statics with respect to market size and productivity shock are characterized through necessary and sufficient conditions. Furthermore, we show that the attention to the constant elasticity of substitution (CES) based on its normative implications was misguided: constant mark-ups, additivity and homotheticity are neither necessary nor sufficient for the market to deliver the optimum outcome. Our approach can cope with heterogeneous firms once it is recognized that the elasticity of substitution is firm-specific. Finally, we show how our set-up can be extended to cope with multiple sectors.
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toward a theory of Monopolistic Competition
Research Papers in Economics, 2014Co-Authors: Mathieu Parenti, Jacquesfrancois Thisse, Philip UshchevAbstract:We propose a general model of Monopolistic Competition, which encompasses existing models while being flexible enough to take into account new demand and Competition features. The basic tool we use to study the market outcome is the elasticity of substitution at a symmetric consumption pattern, which depends on both the per capita consumption and the total mass of varieties. We impose intuitive conditions on this function to guarantee the existence and uniqueness of a free-entry equilibrium. Comparative statics with respect to population size, GDP per capita and productivity shock are characterized through necessary and sufficient conditions. Finally, we show how our approach can be generalized to the case of a multisector economy and extended to cope with heterogeneous firms and consumers.
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Monopolistic Competition and income dispersion
Research Papers in Economics, 2013Co-Authors: A M Osharin, Jacquesfrancois Thisse, Philip Ushchev, V A VerbusAbstract:We develop a model of Monopolistic Competition that accounts for consumers' heterogeneity in both incomes and preferences. This model makes it possible to study the implications of income redistribution on the toughness of Competition. We show how the market outcome depends on the joint distribution of consumers' tastes and incomes and obtain a closed-form solution for a symmetric equilibrium. Competition toughness is measured by the weighted average elasticity of substitution. Income redistribution generically affects the market outcome, even when incomes are redistributed across consumers with different tastes in a way such that the overall income distribution remains the same.
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Monopolistic Competition beyond the constant elasticity of substitution
Econometrica, 2012Co-Authors: Evgeny Zhelobodko, Sergey Kokovin, Mathieu Parenti, Jacquesfrancois ThisseAbstract:We propose a model of Monopolistic Competition with additive preferences and variable marginal costs. Using the concept of “relative love for variety,” we provide a full characterization of the free-entry equilibrium.When the relative love for variety increases with individual consumption, the market generates pro-competitive effects. When it decreases, the market mimics anti-competitive behavior. The constant elasticity of substitution is the only case in which all competitive effects are washed out. We also show that our results hold true when the economy involves several sectors, firms are heterogeneous, and preferences are given by the quadratic utility and the translog.
Philipp J H Schroder - One of the best experts on this subject based on the ideXlab platform.
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ad valorem versus unit taxes Monopolistic Competition heterogeneous firms and intra industry reallocations
Social Science Research Network, 2010Co-Authors: Philipp J H Schroder, Allan SorensenAbstract:Real-world industries are composed from heterogeneous firms and substantial intra-industry reallocations take place, i.e. high productivity firms squeeze out low productivity firms. Previous tax-tool comparisons have not included these central forces of industry structure. This paper examines a general equilibrium Monopolistic Competition model with heterogeneous firms and intra-industry reallocations. We show that the welfare superiority of ad valorem over unit taxes under imperfect Competition is not only preserved but amplified. The additional difference between the tools arises because unit taxes distort relative prices, which in turn reduces average industry productivity through reallocations (the survival and increased market share of lower productivity firms). Importantly, numerical solutions of the model reveal that the relative welfare loss from using the unit tax increases dramatically in the degree of firm heterogeneity.
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the welfare comparison of corrective ad valorem and unit taxes under Monopolistic Competition
International Tax and Public Finance, 2009Co-Authors: Susanne Droge, Philipp J H SchroderAbstract:The ad valorem versus unit tax debate has traditionally emphasized tax yield. On this criterion, ad valorem taxes outperform unit taxes in terms of welfare for a wide range of imperfect Competition settings including Dixit–Stiglitz Monopolistic Competition. However, in a number of policy fields such as environmental, health, and trade economics, policy makers use taxes to reduce the production/consumption volume in an industry, i.e., to correct an externality rather than to improve tax yield. This paper compares the two tax instruments with respect to equal corrective effect in a Dixit–Stiglitz setting with love of variety, entry, exit, and redistribution of tax revenues. We find that unit taxes lead to more firms in the industry, less output per firm, less tax revenue, but higher welfare compared to ad valorem taxes.
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welfare ranking ad valorem and specific tariffs under Monopolistic Competition
Canadian Journal of Economics, 2005Co-Authors: Jan Guldager Jorgensen, Philipp J H SchroderAbstract:Actual trade and tariff policy prefers ad valorem tariffs to specific tariffs. Yet in this paper we show that, in a setting of Monopolistic Competition, realizing a given restriction on imports via a specific tariff would generate more consumer utility than obtaining the same restriction via an ad valorem tariff. JEL classification: F12 Un classement en terme de bien-etre des droits de douane ad valorem et specifiques quand on est en regime de concurrence monopolistique. Les politiques commerciales en vigueur pref rent les droits de douane ad valorem aux droits de douane specifiques. Or ce memoire montre que, dans un contexte de concurrence monopolistique, reduire les importations par le truchement d'un droit de douane specifique genere plus d'utilite pour le consommateur que les memes restrictions obtenues par le truchement d'un droit de douane ad valorem.
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welfare ranking ad valorem and specific tariffs under Monopolistic Competition
Social Science Research Network, 2005Co-Authors: Jan Guldager Jorgensen, Philipp J H SchroderAbstract:Actual trade and tariff policy prefers ad valorem tariffs to specific tariffs. Yet in this paper we show that, in a setting of Monopolistic Competition, realizing a given restriction on imports via a specific tariff would generate more consumer utility than obtaining the same restriction via an ad valorem tariff.
Francesco Di Comite - One of the best experts on this subject based on the ideXlab platform.
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verti zontal differentiation in Monopolistic Competition
Research Papers in Economics, 2011Co-Authors: Francesco Di Comite, Jacquesfrancois Thisse, Hylke VandenbusscheAbstract:The pattern of trade observed from firm-product-country data calls for a new generation of models. To address the unexplained variation in the data, we propose a new model of Monopolistic Competition where varieties enter preferences non-symmetrically, capturing both horizontal and vertical differentiation in an unprecedented way. Together with a variable elasticity of substitution, Competition effects, varying markups and prices across countries, this results in a tractable model whose predictions differ from existing ones. Using the population of Belgian exporters, our model succeeds in explaining the hitherto unexplained variation. The implications call for a re-thinking of earlier results and measurement practices.
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verti zontal differentiation in Monopolistic Competition
Social Science Research Network, 2011Co-Authors: Jacquesfrancois Thisse, Francesco Di Comite, Hylke VandenbusscheAbstract:The recent availability of trade data at a firm-product-country level calls for a new generation of models able to exploit the large variability detected across observations. By developing a model of Monopolistic Competition in which varieties enter preferences non-symmetrically, we show how consumer taste heterogeneity interacts with quality and cost heterogeneity to generate a new set of predictions. Applying our model to a unique micro-level dataset on Belgian exporters with product and destination market information, we find that heterogeneity in consumer tastes is the missing ingredient of existing Monopolistic Competition models necessary to account for observed data patterns.
Hylke Vandenbussche - One of the best experts on this subject based on the ideXlab platform.
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verti zontal differentiation in Monopolistic Competition
Research Papers in Economics, 2011Co-Authors: Francesco Di Comite, Jacquesfrancois Thisse, Hylke VandenbusscheAbstract:The pattern of trade observed from firm-product-country data calls for a new generation of models. To address the unexplained variation in the data, we propose a new model of Monopolistic Competition where varieties enter preferences non-symmetrically, capturing both horizontal and vertical differentiation in an unprecedented way. Together with a variable elasticity of substitution, Competition effects, varying markups and prices across countries, this results in a tractable model whose predictions differ from existing ones. Using the population of Belgian exporters, our model succeeds in explaining the hitherto unexplained variation. The implications call for a re-thinking of earlier results and measurement practices.
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verti zontal differentiation in Monopolistic Competition
Social Science Research Network, 2011Co-Authors: Jacquesfrancois Thisse, Francesco Di Comite, Hylke VandenbusscheAbstract:The recent availability of trade data at a firm-product-country level calls for a new generation of models able to exploit the large variability detected across observations. By developing a model of Monopolistic Competition in which varieties enter preferences non-symmetrically, we show how consumer taste heterogeneity interacts with quality and cost heterogeneity to generate a new set of predictions. Applying our model to a unique micro-level dataset on Belgian exporters with product and destination market information, we find that heterogeneity in consumer tastes is the missing ingredient of existing Monopolistic Competition models necessary to account for observed data patterns.
Ben J Heijdra - One of the best experts on this subject based on the ideXlab platform.
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the Monopolistic Competition revolution in retrospect
Research Papers in Economics, 2002Co-Authors: Steven Brakman, Ben J HeijdraAbstract:In this paper we argue that there have been two Monopolistic Competition revolutions. The first was started by Joan Robinson and Edward Chamberlin in the 1930s but failed to have much impact on economic theory. The second was initiated by Avinash Dixit and Joseph Stiglitz in the early 1970s. Their revolution succeeded because it yielded an analytically tractable model of Chamberlinian Monopolistic Competition (the ``large group'' case). This model has been used in such diverse fields as international trade theory, economic geography, economic growth theory, and macroeconomics. Its popularity shows no sign of decline.
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the Monopolistic Competition revolution in retrospect
Cambridge University Press, 2001Co-Authors: Steven Brakman, Ben J HeijdraAbstract:List of contributors Preface 1. Introduction Steven Brakman and Ben J. Heijdra Part I. Underground Classics: 2. Monopolistic Competition and the capital market Joseph E. Stiglitz 3. Monopolistic Competition and optimum product diversity (May 1974) Avinash K. Dixit and Joseph E. Stiglitz 4. Monopolistic Competition and optimum product diversity (February 1975) Avinash K. Dixit and Joseph E. Stiglitz Part II. Current Perspectives: 5. Some reflections on theories and applications of Monopolistic Competition Avinash K. Dixit 6. Reflections on the state of the theory of Monopolistic Competition Joseph E. Stiglitz 7. Dixit-Stiglitz, trade and growth Wilfred J. Ethier Part III. International Trade: 8. Monopolistic Competition and international trade theory J. Peter Neary 9. Monopolistically competitive provision of inputs: a geometric approach to the general equilibrium Joseph Francois and Douglas Nelson Part IV. Economic Geography: 10. The core-periphery model: key features and effects Richard E. Baldwin, Rikard Forslid, Philippe Martin, Gianmarco I. P. Ottaviano and Frederic Robert-Nicoud 11. Globalisation, wages and unemployment: a new economic geography perspective Jolanda J. W. Peeters and Harry Garretsen 12. Empirical research in geographical economics Steven Brakman, Harry Garretsen, Charles van Marrewijk and Marc Schramm 13. The Monopolistic Competition model in urban economic geography J. Vernon Henderson Part V. Economic Growth: 14. Monopolistic Competition and economic growth Sjak Smulders and Theo van de Klundert 15. Convergence and the welfare gains of capital mobility in a dynamic Dixit-Stiglitz world Sjak Smulders 16. A vintage model of technology diffusion: the effects of returns to diversity and learning-by-using Henri L. F. de Groot, Marjan W. Hofkes and Peter Mulder Part VI. Macroeconomics: 17. Monopolistic Competition and macroeconomics: theory and quantitative implications Russell W. Cooper 18. Does Competition make firms enterprising or defensive? Jan Boone 19. Rationalisation and specialisation in start-up investment Christian Keuschnigg 20. Industrial policy in a small open economy Leon J. H. Bettendorf and Ben J. Heijdra Index.
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fiscal policy distortionary taxation and direct crowding out under Monopolistic Competition
Oxford Economic Papers, 1998Co-Authors: Ben J Heijdra, Jenny E Ligthart, Frederick Van Der PloegAbstract:A simple macroeconomic model with Monopolistic Competition on the goods market is developed which displays Keynesian features. The model is used to study the effects of a rise in public spending on national income. The model extends the literature in two directions. First, the authors assume that the government balances its budget by employing distortionary income taxation. Second, they allow for direct crowding out since public consumption enters private utility in a nonseparable fashion. With upward sloping labor supply, an increase in public spending depresses national income, more so in the long run than in the short run. Copyright 1998 by Royal Economic Society.
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Monopolistic Competition and optimum product diversity comment
The American Economic Review, 1993Co-Authors: Xiaokai Yang, Ben J HeijdraAbstract:The model of Avinash Dixit and Joseph E. Stiglitz (1977) (DS hereafter) has received more and more attention from economists in the past decade and can now be regarded as the central model of Monopolistic Competition. Applications of the model can be found in such diverse fields as international trade, growth theory, and macroeconomics.1 The purpose of this short note is twofold. First, we suggest an alternative solution method to that proposed by DS and used in most applications of their model. Our method makes full use of the symmetry assumption employed by DS but extends their method, so that the resultant pricing rule takes into account the price-index effect. Our method retains the intuitive appeal and simplicity of the original DS model. Second, we show that our solution method extends the range of applicability of the DS model significantly; more general production structures can now be incorporated in the model. The note is organized as follows. In Section I we set up the DS model and develop our solution method. We also discuss the impact that the alternative solution method has on the qualitative results obtained in the DS study and the early application by Paul R. Krugman (1980). Section II broadens the scope of the discussion somewhat by discussing existence problems associated with the DS approach under increasing returns and isoelastic cost functions. It is shown that if our solution method is used then the existence problems disappear, and the DS model yields well-defined answers. Finally, in Section III some concluding remarks are given.
